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BEC section 2
CPA study cards
79
Accounting
Graduate
07/08/2009

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Term
Business cycle
Definition
refers to the rise and fall of economic activity relative to its long term growth trend
Term
Macroeconomics
Definition
study of the economy as a whole. National income, unemployment, inflation, and how monetary and fiscal policies affect economic activity.
Term
microeconomics
Definition
studies consumers, producers, and suppliers operating in a narrowly defined market
Term
GDP
Definition
the most common measure of economic activity. The total market value of all FINAL goods and services (excluding goods that have been resold) produced within the borders of a nation in a particular time period. US GDP includes foreign owned factories in the US no excludes the output of US owned factories abroad.
Term
Nominal GDP
Definition
measures the value of all final goods/services in current prices. Not adjusted for inflation.
Term
Real GDP
Definition
adjusted to account for changes in the price level. Removes inflation.
Term
Price index/GDP deflator
Definition
Real GDP = (Nominal GDP/GDP deflator) * 100
Term
Expansionary period - business cycle
Definition
rising economic activity (real gdp) and growth. profits, labor, demand, and price are all rising.
Term
Peak -BC
Definition
high point of economic activity. Profits at max. Firms face capacity constraints and input shortages, leading to higher costs and a higher overall price
Term
Contractionary phase - BC
Definition
falling economic activity and growth. Profits fall
Term
trough
Definition
low point of econ activity. firms are likely to experience significant excess production capacity leading them to reduce the size of their workforce and cut costs.
Term
recovery phase aka expansionary phase again
Definition
econ activity begins to increase and return to its long term growth trend. profits stabilize and demand rises.
Term
Recession
Definition
when economy experiences negative real economic growth. Two consecutive quarters of falling national output.
Term
Depression
Definition
Very severe recession.
Term
Leading indicators (before economy moves...prediction)
Definition
avg. new unemployment claims, building permits for residences, avg length of the workweek, money supply, prices of selected stocks, orders for goods, price changes of materials, index of consumer expectations
Term
Lagging indicators - AFTER
Definition
prime rate charged by banks, average duration of unemployment, bank loans outstanding
Term
coincident indicators - DURING
Definition
industrial production, manufacturing and trade sales
Term
Reason for fluctuations in business cycle?
Definition
shifts in aggregate demand and/or agg. supply
Term
AD curve
Definition
the maximum quantity of all goods and services that households, firms, and the government are willing and able to purchase at any given price level.
Term
AS curve
Definition
the max quantity of all goods and services producers are willing and able to produce at any given price level.
Term
SRAS
Definition
Upward sloping...as prices rise, firms are willing to produce more
Term
LRAS
Definition
Vertical. if all resources are fully utilized, output is solely determined by the factors of production
Term
Real GDP on the AD/SRAS/LRAS graph
Definition
GDP = LRAS = SRAS = AD.
Term
Reduction in demand
Definition
shift curve left. -AD -GDP -P
Term
Increase in demand
Definition
Curve shifts right. +AD +GDP +P
Term
reduction in supply
Definition
shift left. -SRAS -GDP +P
Term
Increase in supply
Definition
shift right. +SRAS +GDP -P
Term
Factors that shift AD
Definition
increase in wealth: +w +spend +AD +GDP +P
Decrease in wealth: -w -spend -AD -GDP -p
Increase in real interest rates: +i -borrow -spend -AD -GDP -P
Decrease in real interest rates: -i +borrow +spend +AD +GDP +P
Confident outlook: +spend +AD +GDP +p
Uncertain outlook: -spend -AD -GDP -p
Term
Factors that affect AD continued
Definition
appreciated domestic currencies: -export +import -AD -GDP -P
Depreciated dom. currencies: +export -Import +AD +GDP +p
increase in gov spending: +AD +GDP +P
Decrease "" -AD -GDP -p
Increase in consumer taxes: -spend -AD -GDP -P
Decrease "": +spend +AD +GDP +p
Term
The Multiplier effect
Definition
a $1 increase in gov spending results in a greater than $1 increase in GDP.
Formula: [1/(1-MPC)]*change in spending. 1-MPC is the marginal propensity to save.
Term
MPC
Definition
Marginal propensity to consume. the change in consumption due to a $1 increase in income.
Term
Factors that shift SRAS
Definition
increase in input prices: -produce -SRAS -GDP +p
Decrease "": +SRAS +GDP -p
Supplies are plentiful: +SRAS +GDP -p
Supplies are curtailed: -SRAS -GDP +p
Term
most common economic measures
Definition
GDP, unemployment rate, inflation rate, interest rates
Term
Calculate GDP - expenditure approach
Definition
The sum of these...
G: government purchases
I: Investment
C: personal consumption
E: NET exports
Term
Calculate GDP - Income approach
Definition
I: income of proprietors
P: profits of corps
I: interest (net)
R: rental income
A: adjustments for net foreign income
T:Taxes
E: Employee compensation
D: depreciation
Term
Net domestic product
Definition
NDP = GDP - Depreciation
Term
GNP
Definition
the market value of final goods and services produced by residents of a country in a given time period. GNP includes goods and services that are produced overseas by US firms and excludes goods that are produced domestically by foreign firms.
Term
Net national product
Definition
GNP -Depr
Term
national income
Definition
NNP - Sales tax
Term
Personal income
Definition
NI - various adjustments
Term
disposable income
Definition
PI - personal taxes
Term
The unemployment rate
Definition
ratio of number of ppl classified as unemployed to the total labor force. The total labor force includes all non-institutionalized individuals 16 years of age or older who are either working or actively looking for work. Unemployed ppl must be actively looking for work.
Term
Unemployment rate forumla
Definition
Number of unemployed/total labor force *100
Term
Frictional unemployment
Definition
normal unemployment resulting from workers routinely changing jobs or from workers being temporarily laid off.
Term
structural unemployment
Definition
jobs available in the market do not correspond to the skills of the work force and unemployed workers do not live where the jobs are located.
Term
seasonal unemployment
Definition
result of seasonal changes in the demand and supply of labor.
Term
cyclical unemployment
Definition
when real GDP goes down, unemployment goes up and vice versa. Recession-based unemployment.
Term
natural rate of unemployment
Definition
sum of frictional, structural and seasonal unemployment
Term
full employment`
Definition
no cyclical unemployment. does not mean zero unemployment
Term
inflation
Definition
sustained increase in the general prices of goods and services.
Term
deflation
Definition
sustained decrease in the general prices of goods and services
Term
inflation/deflation rate
Definition
measured as the percentage of change in the consumer price index from one period to the next
Term
CPI
Definition
measure of the overall cost of a fixed basket of goods and services purchased by an average household.
Term
Change in CPI or inflation rate
Definition
[CPI(this period)-CPI(last period)]/CPI(last period) *100
Term
Demand pull inflation
Definition
increase in demand causes prices to rise.
Term
cost push inflation
Definition
rising costs of inputs may drive down SRAS and cause prices to rise.
Term
Holding monetary assets
Definition
inflation makes money lose purchasing power. those with fixed amounts of money will be hurt
Term
holding monetary liabilities
Definition
inflation makes payback on fixed loans good. debt will be paid with inflated dollars.
Term
nominal interest rate
Definition
no inflation adjustment
Term
real interest rate
Definition
real interest rate =nominal interest rate - inflation rate
Term
Open market ops
Definition
purchase and sale of government securities in the open market
Term
increase in money supply
Definition
fed purchases govt securities +AD +GDP +p
Term
decrease in the money supply
Definition
Fed sells government securities -AD -GDP -P
Term
Changes in discount rate
Definition
interest rate fed charges member banks for short term loans. raising the discount rate discourages borrowing and thus AD goes down do to a lack of spending. Vice versa
Term
Changes in the required reserve ratio
Definition
RRR is the fraction of total deposits banks must hold in reserve. raising decreases money supply.
Term
8 steps in strategic management
Definition
Define the firms vision and mission, set goals, define the objectives, decide what to measure and take a baseline measurement, Strategic analysis, create the strategic plan, implement the plan, evaluate and revise the plan as necessary
Term
define vision and mission
Definition
mission statement usually represent one or two line descriptions of what the organization is in business to do
Term
set the goals
Definition
there are two broad and distinct paths for achieving organizational goals: cost leadership and differentiation
Term
define the objectives
Definition
financial (profits, cashflow, eliminate debt) non financial (improve quality and satisfaction)
Term
Decide what measure to take and take a baseline measurement
Definition
financial statements, quality control measures, satisfaction survey, measure employees
Term
Strategic analysis SWOT
Definition
strengths weaknesses opportunities and threats
Term
strategic plan
Definition
set of steps to achieve the objectives of the firm while staying in line with the firms vision and mission statement.
Term
implement strategic plan
Definition
the plan should be able to address those areas that will be applicable at all the different levels of the firm so that the plan is executed as a team that shares a common goal.
Term
quantity demanded
Definition
the quantity of a good individuals are willing and able to purchase at a given price, all else equal.
Term
change in quantity demanded
Definition
microecon: change int he amount of a good demanded resulting solely from a change in price
Term
change in demand
Definition
change in the amount of a good demanded resulting form a change in something other than the price of the good.
Term
substitution effect
Definition
coke v. pepsi. price of coke goes up, then demand for pepsi goes up.
Term
factors that shift the demand curve
Definition
WRITEN: Changes in...
Wealth
Related goods prices
income (consumer)
tastes (consumer)
expectations (consumer)
number of buyers served by the market
Term
factors that shift supply curve
Definition
ECOST: changes in...
expectations in price of the supplying firm
costs of production (inputs)
other goods price and demand
subsidies or taxes
technology
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